Case Summaries

Numerous entities and organizations throughout the Pacific Northwest filed petitions for judicial review of a direct power contract between Bonneville Power Administration (BPA) and Alcoa, Inc. These petitions were consolidated for direct review (144) by the United States Court of Appeals for the Ninth Circuit. Petitioners were primarily power companies, power suppliers, and major power purchasers within the Pacific Northwest. Additionally, Alcoa sought review of a BPA interpretation of a prior Ninth Circuit holding from which BPA concluded that financial benefits of its transactions must outweigh costs to comply with its statutory mandate. After making an initial determination that the case was not moot, the Ninth Circuit affirmed the validity of all BPA contracts and actions at issue in this case as not arbitrary and capricious. It further held that BPA's contract fell within a categorical exclusion to the National Environmental Policy Act (NEPA). (145)

BPA is a federal agency charged with marketing wholesale electrical power generated by federal facilities in the Pacific Northwest. It sells electricity to public bodies and cooperatives (preference customers), private, investor-owned utilities, and, at BPA's choosing, to direct service industrial customers (DSIs). Preference customers receive a priority firm rate (PF rate). (146) DSI customers, on the other hand, pay a cost-based rate (IP rate) that must be "equitable in relation to the retail rates charged" by BPA's preference customers to industrial customers. (147) Further, BPA must set rates in accordance with sound business principles. (148)

Prior to this case, the Ninth Circuit reviewed two other contracts between BPA and Alcoa. In the first case, Pacific Northwest Generating Cooperative v. Department of Energy (PNGC I), (149) the court held that offering power to a DSI at the PF rate was inconsistent with BPA's statutory authority. In the second case, Pacific Northwest Generating Cooperative v. Bonneville Power Administration (PNGC II), (150) the court held that the obligation to set rates was consistent with sound business principles applied to sales of power at the IP rate. The court determined that BPA must offer the IP rate if BPA elected to sell Alcoa power. In turn, BPA understood PNGC II to mean that in order to sell power to a DSI, BPA had to first "conclude based on evidence in the record that the proposed transaction will result in benefits that equal or exceed the costs to BPA of the transaction." (151) BPA referred to this interpretation as the "equivalent benefits standard."

Alcoa's current contract was divided into four stages: 1) an "Initial Period," 2) an "Extended Initial Period," 3) a "Transition Period," and 4) a "Second Period." The Initial Period lasted from December 22, 2009 to May 26, 2011. BPA determined that it could supply 320 average megawatts of electricity to Alcoa during the Initial Period at the IP rate and satisfy its equivalent benefits standard. In turn, it would earn a net profit of $10,000. The Extended Initial Period (152) was not at issue in this case. Following the Initial Period and any Extended Initial Period, the contract stated that the Transition Period would occur only if "the Ninth Circuit issues an opinion or other ruling holding, or that BPA determines can reasonably be interpreted to mean, that the equivalent benefits standard does not apply to sales under [the Alcoa Contract]." (153) If this contingency were met, BPA would have one year to study whether it could provide service to Alcoa for a five year term in the Second Period, again for 320 average megawatts of electricity at the IP rate. Following the Extended Initial Period, the parties made three rapid short-term contract amendments that extended the Initial Period to facilitate negotiations in 2012.

Two other relevant occurrences took place prior to this case. …

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